Question

Consider the following situations for Shocker:

(a) On November 28, 2018, Shocker receives a $3,000 payment from a customer for services to be rendered evenly over the next three months. Deferred Revenue is credited.
(b) On December 1, 2018, the company pays a local radio station $2,400 for 30 radio ads that were to be aired, 10 per month, throughout December, January, and February. Prepaid Advertising is debited.
(c) Employee salaries for the month of December totaling $7,000 will be paid on January 7, 2016.
(d) On August 31, 2018, Shocker borrows $60,000 from a local bank. A note is signed with principal and 8% interest to be paid on August 31, 2019.

Required: Indicate by how much the assets, liabilities, and stockholders' equity in the December 31, 2018, balance sheet is higher or lower if the adjustment is not recorded. (If none of the categories apply for a particular item, leave the cell blank.)

Answer 1

(a) On November 28, 2018, Shocker receives a $3,000 payment from a customer for services to be rendered evenly over the next three months. Deferred Revenue is credited.

Assets = Lower by $ 3,000

Liabilities = No Effect

Stockholders Equity = No Effect

(b) On December 1, 2018, the company pays a local radio station $2,400 for 30 radio ads that were to be aired, 10 per month, throughout December, January, and February. Prepaid Advertising is debited.

Assets = Higher by $ 2,400

Liabilities = No Effect

Stockholders Equity = No Effect

(c) Employee salaries for the month of December totaling $7,000 will be paid on January 7, 2016.

Assets = No Effect

Liabilities = Lower by $ 7,000

Stockholders Equity = Higher by $ 7,000

(d) On August 31, 2018, Shocker borrows $60,000 from a local bank. A note is signed with principal and 8% interest to be paid on August 31, 2019

Assets= Lower by $ 60,000

Liabilities = Lower by $ 60,000

Stockholders Equity = Higher by $4,800

Step-by-step explanation:

(a) On November 28, 2018, Shocker receives a $3,000 payment from a customer for services to be rendered evenly over the next three months. Deferred Revenue is credited.

Recognise an Asset - Cash and a Liability - Deferred Revenue. Only Liability was Recognised

(b) On December 1, 2018, the company pays a local radio station $2,400 for 30 radio ads that were to be aired, 10 per month, throughout December, January, and February. Prepaid Advertising is debited.

Recognise Asset - Prepaid Advertising and De-recognise Asset - Cash. Only Prepaid Advertising was recognised

(c) Employee salaries for the month of December totaling $7,000 will be paid on January 7, 2016.

Recognise a Liability Salaries Payable and an expense Salaries and Wages. Both items were not recognised

(d) On August 31, 2018, Shocker borrows $60,000 from a local bank. A note is signed with principal and 8% interest to be paid on August 31, 2019

Recognise the Liability - Loan and recognise the asset - Cash. Also recognise the expense that accrue as a result of interest on August 31.